Residence and tax system

A company is a tax resident in Bulgaria if it is incorporated under Bulgarian law. Resident companies are taxed on their worldwide income. Non-resident companies are taxed only on their Bulgarian source income.

Compliance requirements for CIT purposes

The fiscal year coincides with the calendar year. The annual corporate income tax return has to be filed and the annual corporate income tax liability has to be paid by March 31 of the following year.

on interest paid to non-resident companies

A 10 percent rate applies to interest paid to a foreign entity. As of January 1, 2015 exemptions apply for interest payments to EU affiliated companies under the EU Interest and Royalties Directive (subject to conditions).

A 10 percent rate applies to royalties paid to a foreign entity. As of January 1, 2015 exemptions apply for royalty payments to EU affiliated companies under the EU Interest and Royalties Directive (subject to conditions).

on other payments

renting out real estate property or capital gains from the disposal of such assets.

branch withholding tax

Yes

Holding rules

dividend received from resident/non-resident subsidiaries

Exemptions (100 percent) apply for dividends received from Bulgarian and EU/EEA subsidiaries as of January 1, 2009 (no minimum participation or holding period requirements), unless the distributed amount decreases the tax result of the subsidiary (either as tax deductible expenses, or as another type of downward adjustment to the tax base), irrespective of the applicable accounting treatment.

capital gains obtained from resident/non-resident subsidiaries

An exemption (100 percent) applies to capital gains from disposal of shares traded on the Bulgarian and EU stock exchanges (no minimum participation or holding period requirements).

Tax losses

Tax losses can be carried forward for 5 years. There are no provisions regarding tax loss carry-back.

Tax consolidation rules/Group relief rules

No.

Registration duties

Registration fees vary according to the entity to be registered, from a minimum of EUR 56 to a maximum of EUR 665.

Transfer duties

on the transfer of shares

No.

on the transfer of land and buildings

Transfer tax in the range of 0.1 percent – 3 percent is levied on the value of transferred real estate property (land and buildings). The tax rate is determined annually by the relevant municipality.

stamp duties

No.

real estate taxes

Annual real estate tax in the range of 0.01 percent - 0.45 percent on the tax valuation of the property is determined annually by municipalities. Annual garbage collection fees on the tax valuation of the properties are also collected by municipalities.

Controlled Foreign Company rules

No.

Transfer pricing rules

general transfer pricing rules

Arm’s length principles apply.

documentation requirement

Supporting documentation is required.

Thin capitalization rules

Thin capitalization rules apply if the average debt-to-equity ratio exceeds 3:1. The amount of non-deductible interest is calculated as total interest income plus 75 percent of the profit before all interest income, interest expenses, and taxes. Thin capitalization rules do not apply to (i) interest expenses on finance leases and bank loans, unless they are concluded between, guaranteed or secured by, or granted to the order of a related party; (ii) penalty interest; (iii) capitalized interest; and (iv) interest expenses not recognized for tax purposes under other provisions in Bulgarian law. Interest expenses disallowed under thin capitalization rules represent a temporary tax difference that may be reversed in the subsequent 5 years.

General AntiAvoidance rules (GAAR)

Yes.

Specific AntiAvoidance rules/Anti Treaty Shopping Provisions

Yes.

Advance Ruling system

Opinions issued by the tax authorities are not binding.

IP / R&D incentives

Other incentives

Tax resident companies in Bulgaria are entitled to use certain corporate tax incentives subject to conditions. Available incentives include: - a corporate tax exemption of up to 100 percent for manufacturing companies investing in municipalities with high unemployment levels (a decision by the EU Commission is required for large investment projects that have received state aid from all available sources exceeding the equivalent of EUR 37.5 million in local currency, or EUR 18.75 million in local currency for investments in the southwestern region of the country); - a job creation tax incentive; - a corporate tax exemption for licensed real estate investment trusts.

VAT

The standard rate is 20 percent, and the reduced rates are 9 and 0 percent.

Other relevant points of attention

Hidden distribution of profits ("HDP"): Amounts accrued, paid, or distributed in any form by Bulgarian tax resident companies to shareholders, partners, or related parties, not related to the business activity of the taxpayer or exceeding the market levels, as well as certain interest expenses, are treated as a HDP and are therefore not recognized for corporate income tax purposes. A penalty of 20 percent of the amounts qualifying as HDP may also be imposed (unless the HDP is reported in the annual corporate income tax return). In addition, a HDP is treated as a deemed dividend and hence subject to a 5 percent withholding tax if accrued, paid, or distributed to a foreign tax resident entity with no option for exemption if the beneficiary is an EU/EEA tax resident.